Analysts Hailing `dream

Unemployment At 24-year Low

May 3, 1997|By ELLEN FORMAN Business Writer

Forget that talk about higher interest rates and the slumping stock market.

After a Labor Department report on Friday showed unemployment had dropped to 4.9 percent, the lowest in 24 years, normally staid economists used phrases like "an American worker's joy" - and investors seemed to feel the same way. The stock market finished up its best week since 1991, with the Dow Jones industrial average finishing just 14 points from its record. The Dow's 4.93 percent gain for the week was its best since a 5.69 percent advance the week of Dec. 27, 1991. Advancing shares topped decliners by a ratio of more than four to one.

"It's a dream economy," said Astrid Adolfson, an economist at MCM MoneyWatch in New York.

Even a key economic forecasting gauge indicates the Federal Reserve Bank is facing less pressure to raise rates.

The Conference Board on Friday said its index of leading indicators rose a scant 0.1 percent in March, signaling a possible slowdown ahead in the economy's recent rapid pace.

The index, designed to forecast economic activity six to 12 months ahead, rose 0.5 percent in February and 0.3 percent in January.

"I think that we're looking at a really robust economy, although one growing at a slower pace than we had in the first quarter," said economist Richard Berner, executive vice president of Mellon Corp. in Pittsburgh.

Florida's economy has been enjoying healthy employment growth, but numbers for April won't be available until the end of this month.

While the national unemployment rate fell to its lowest level since December 1973, the economy added 142,000 jobs in April, fewer than expected, and the March employment gain was revised to a lower number of 139,000. Analysts were expecting a gain of 195,000 jobs in April.

"This is an American worker's joy," said economist Allen Sinai of Primark Decision Economics. "There are plenty of jobs available and American workers have many more choices than any time in the last two decades."

A handful of economists resisted the general euphoria, concerned that an interest rate hike at the Fed's May 20 meeting would mark a rude awakening. Economist Robert G. Dederick of Northern Trust Co. in Chicago said some of the restraint in job growth is explained by a scarcity of qualified employees, not lack of available work. And that, he said, should raise inflation concerns at the Federal Reserve.

"For labor, these are good times indeed and they've been good times for business too," he said. "But this has a little bit of the vestiges of the last part of the party."

The Fed's policy-making open market committee raised the overnight bank rate a quarter point on March 25 to 5.50 percent, the first such action in two years, prompting banks to raise prime rate a quarter point to 8.50 percent. Most analysts expect another Fed rate increase, either at the open market committee's next meeting May 20 or on July 2.

Yet many of those who expect a Fed hike think it will be minimal - and don't think it will slam the door on growth.

New York labor economist Audrey Freedman doesn't see the usual signs for concern.

The rise of the temporary work force, with workers moving from project to project, has helped smooth out some of the peaks and valleys in employment, Freedman said.

"The work force is extremely flexible. They're moving from need to need," she said. "We're using our labor force like a very tightly functioning piece of machinery."

Some economists say there's more good news to come.

"I don't think we've seen the last of the good news in terms of employment," said Mark Vitner, who follows the Florida economy at First Union Bank. The unemployment rate should average between 4.5 percent and 5 percent this year, he said.

"The lower rate is putting pressure on wages - there's no escaping that - but the pressure has been pretty mild," he said.

Despite the relatively modest job growth for April, which is derived from a survey of businesses, signs of a booming job market abounded. At factories, the average workweek edged up a tenth of an hour to 42.2 hours, matching the post-World War II high of January 1995. Overtime at factories inched to five hours, the highest level since the government began tracking that figure in 1956.

Information from Bloomberg Business News and The Associated Press was used to supplement this report.